With the French election approaching and political uncertainty growing, financial markets are beginning to stir up. Today, the first round of voting will be held in the French general election, and there is a view that the European Central Bank may intervene if the results of this round of voting cause panic in the market. In 2022, the European Central Bank (ECB) launched the "Transmission Protection Mechanism (TPI)" of the bond-buying program, which is intended to buy bonds of relevant countries to reduce their long-term interest rates by buying bonds in a disorderly manner, so as to reduce the risk of uneven and "fragmented" monetary policy effects due to the widening of the sovereign power gap among countries in the eurozone.
Macron is behind, and the ECB makes a move? According to the latest polling data, France's far-right party National Alliance (RN) ranks first and is relatively ahead, while the left-wing coalition is in second place, while the centrist coalition led by President Emmanuel Macron is relatively backward in third place. Industry analysts pointed out that if France's far-left and far-right parties continue to lead in the first round of voting, it could lead to a larger bond sell-off and exacerbate the divergence of interest rate differentials within the eurozone. On Thursday, the yield on the 10-year Treasury bond benchmark between France and Germany rose in tandem, with the spread between the two rising to 83 basis points intraday, the highest since 2012.
Sabrina Khanniche, Senior Economist at Pictet Asset Management, said:
"If the risk of a breakup in France rises to alarming levels, the ECB will intervene if necessary to preserve the integrity of the euro."
As Wall Street heard earlier, Citi analysts reported on Wednesday that the worst-case scenario is that the right-wing National Alliance or Syriza coalition, regardless of who wins the two rounds of elections, will force the incumbent President Emmanuel Macron to resign, in which case the French stock market could fall to 20% of its market value.
The "legality" of the intervention is still controversial, but economists are divided on whether the ECB's TPI plan can buy bonds. According to the plan, the ECB can buy an unlimited amount of bonds from a country under market stress using the TPI, which does not have a cap on bond purchases, but only if the country complies with the EU's fiscal rules, including the EU. Earlier this month, the European Commission announced that it would launch an "excessive deficit procedure" for Paris, whose budget deficit is 5.5% of GDP, well above the 3% limit set by EU rules. Therefore, German Finance Minister Lindner warned the ECB on the 27th that bailing out the French government bond market may be illegal:
"The ECB's strong intervention will raise some economic and constitutional issues."
Earlier, ECB President Christine Lagarde had said that the ECB would closely monitor the French market, but only that. The other side argues that the TPI has not been implemented since its introduction and that the corresponding preconditions are not completely rigid, so the key criterion for deciding whether to activate the TPI may be whether the market reaction is judged to be "disorderly". ECB Chief Economist Ryan hinted that the ECB may not act if the market reaction to the French election is orderly. But in the event of a full-blown panic in the market, the ECB is likely to act. ⭐ Star Wall Street news, good content do not miss ⭐ This article does not constitute personal investment advice, does not represent the views of the platform, the market is risky, investment needs to be cautious, please make independent judgment and decision-making.